March 11th, 2021

Should Your Canadian Start-Up Become a Benefit Company?
​Effective June 30, 2020, British Columbia became the first Canadian province in the country to enact legislation regarding a new corporate form known as a 'benefit company'.[1] The concept originated in Maryland in the United States and has since been adopted by 35 other states.[2]
 
The amendment to the British Columbia Business Corporations Act [BCBCA] was introduced as a private member’s bill with the aim to support companies who choose to pursue social and environmental goals at the heart of their mission.[3] However, the question remains if entrepreneurs and start-ups should adopt this new for-profit structure and if more provinces will adopt the legislation considering the success the United States has seen.
 
What Is a Benefit Company?To become a benefit company in British Columbia, your start-up must include a 'benefit statement' and 'benefit provision' in its notice of articles.[4] The benefit statement must make clear its commitment to conducting business in a sustainable and responsible manner while also advocating one or more public benefits.[5] The benefit provision needs to detail the 'public benefits' it intends on promoting. The BCBCA broadly defines a 'public benefit' as having a positive effect on communities, organizations, the environment, or a class of persons other than shareholders of the company.[6] This positive effect can be artistic, charitable, cultural, economic, educational, environmental, literary, medial, religious, scientific, or technological in nature.[7] In the benefit company’s articles it also needs to explain the company’s commitments to conducting business sustainably and responsibly as well as highlight its specified public benefits.[8]
 
What are the Benefits?
In 2004, the Supreme Court of Canada expanded a director’s fiduciary duties to include social morals by not enforcing a shareholder primacy rule. [9] This means fiduciaries may choose to pursue broader matters beyond increasing profits for its shareholders. Despite these rules, there are still some advantages of transitioning to a benefit company. For example, it can provide clarity and certainty regarding a company’s purpose, even if the founders decide to move on at a later date. This type of entity can also help attract capital from ethically motivated investors who wish to make a positive impact.
 
The amendment even restricts who can sue the company in relation to its duties and allows shareholders to bring an action against a benefit company’s directors if a member of the board chooses to disregard the start-up's primary purpose and is in violation of their duty relating to its purported public benefits.[10]
 
What are the Disadvantages?
Despite the success in the United States, critics of the amendment have many questions about the benefits to a start-up from both a business and legal perspective. From a business perspective, it is unknown how attractive becoming a benefit company is to investors, consumers, and potential new employees. It is also yet to be established which industries should consider exploring this type of entity. Legal experts are wondering how directors will balance their duties of the new amendment with their existing fiduciary responsibilities. There is also a question of how a benefit company will measure the well-being of people impacted by its efforts. It is also unclear what happens if benefit expectations are not met.
 
How to Find Out if You Should Become a Benefit Company?While some questions remain to be answered about benefit companies, it is worth discussing with a legal professional if this avenue is worth exploring or if the existing legislation is sufficient in supporting your social purpose.
 
The BLG Business Venture Clinic can assist in answering your legal questions as well as provide advice on how to start your new venture. Get in contact with us today and find out how we can help.
 
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[1] Business Corporations Act, SBC 2002, c57 [BCA].
[2] Mondaq (2020, 7 2) Canada: Benefit Companies Arrive in B.C. Retrieved from mondaq.com: https://www.mondaq.com/canada/shareholders/960856/benefit-companies-arrive-in-bc.
[3] Ibid.
[4] BCA, supra note 1, s. 1.
[5] Ibid at s. 51.992 (1).
[6] Ibid at s. 51.991 (1).
[7] Ibid.
[8] BCA, supra note 1, s. 51.992(2).
[9] Peoples Department Stores Inc. v Wise 2004 SCC 68.
[10] Lexology (2020, 6 5) In a First for Canada, Benefit Companies Are Coming to British Columbia. Retrieved from lexology.com: https://www.lexology.com/library/detail.aspx?g=d18e8fb6-c356-4a16-96ea-cc80c267cabe.